2015 (4) TMI 1221 - AT - Income Tax

Application of registration under section 12AA rejection - absence of the dissolution-clause - Held that - We find that the DIT-E had denied the registration to the assessee-trust because he was of the opinion that in absence of the dissolution-clause trust was not entitled for registration.We find that in the case of Tara Education and Charitable Trust 2014 (7) TMI 869 - ITAT MUMBAI and Geeta Lalwani Foundation (2015 (1) TMI 1368 - ITAT MUMBAI)the Tribunal had held that absence of dissolution deed could not be the basis for refusing registration to a trust. - Decided in favour of assessee

Summary

Issues:
Challenging rejection of registration under section 12AA of the Income Tax Act, 1961 by the Director of Income tax-Exemption Mumbai.

Analysis:
The assessee raised multiple grounds of appeal against the order of the Director of Income Tax (exemption) rejecting the application for registration under section 12AA of the Income Tax Act, 1961. The main contention was the absence of a dissolution clause in the trust deed, which the Director considered essential for a valid public charitable trust. The Director held that the trust must be irrevocably constituted, and in case of dissolution, its assets should be transferred to another trust with similar objects as per the Bombay Public Trust Act, 1950. The Director emphasized the necessity of a specific dissolution clause in the trust deed to ensure compliance with legal requirements.

During the hearing, the Authorized Representative argued that the trust deed clearly stated the trust's irrevocability and empowered the trustees to amalgamate with other trusts without needing a separate dissolution clause. The AR cited precedents where the absence of a dissolution clause was not a valid reason for denying registration to a trust. The Departmental Representative, however, supported the Director's decision.

The Tribunal, after considering the arguments and precedents, held in favor of the assessee. Citing previous cases, the Tribunal emphasized that the Bombay Public Trust Act, 1950 does not mandate a mandatory dissolution clause for irrevocable trusts. Therefore, the Tribunal directed the Director of Income Tax (exemption) to grant registration to the assessee-trust based on the trust's irrevocability and the absence of a dissolution clause not being a valid ground for rejection. Consequently, the appeal filed by the assessee was allowed, and registration was granted to the trust.

In conclusion, the Tribunal's decision highlighted the importance of assessing the trust's irrevocability and compliance with legal provisions rather than solely focusing on the presence of a dissolution clause. The judgment clarified that the absence of a dissolution clause should not be a decisive factor in rejecting registration under section 12AA of the Income Tax Act, 1961.